INTRODUCTION:

The Indian banking sector is facing a serious problem of mounting NPAs which are to the tune of Rs.421.17 billion in March 2006 and in March 2012 it was Rs.1124.89 billion. Therefore, the earning capacity and profitability of many banks and financial institutions has been adversely affected by the high level of NPAs. The reduction of NPAs in banks is posing the biggest challenges in the Indian economy. It affects the liquidity, profitability and equity. The decline in NPAs is particularly significant as income recognition, asset classification and provisioning norms were tightened over the years. For instance, banks now follow 90 day delinquency norms as against 180 days earlier. An asset is now treated a doubtful it remains unpaid for more than 120 days instead of 180 revised days earlier. The banks are also required to make provision (0.40) for standard advances, barring banks direct advances to agricultural and small and medium sector.

The general provisioning requirement is 1.0 per cent for certain sensitive sectors. Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists of all the nonstandard assets like as sub-standard, doubtful, and loss assets.

According to RBI, improved profitability, underpinned by robust macroeconomic environment and upturn in interest rate cycle, has enabled banks to reduce the backlog of NPAs. Although asset quality in the banking system has improved considerably over the years, commercial banks need to guard against any deterioration of credit quality, particularly in the wake of significant expansion of credit. RBI feels that banks need to have a comprehensive system in which the process of risk monitoring is combined with proper risk assessment. This would entail creation and maintenance of an appropriate data base on risk assessment and credit extended, which would be required to be updated periodically. With this backdrop, an attempt has been made in the following paragraphs to examine the NPA of Private Sector Banks in India.

Banks in India can be classified into two broad composite categories — public sector banks and private banks. While SBI and nationalised banks (NBs) constitute public sector banks (PSBs), private banks comprise new and old private sector banks. Amongst these banks, PSBs had a market share of around 80 per cent and private banks 20 per cent as on March 2013. Within PSBs, SBI has the largest market share of 19.1 per cent, and the balance 20 NBs account for 60.6 per cent.

The NPBs (new private banks) and OPBs (old private banks) account for 15.8 per cent and 4.5 per cent of the market share respectively. The various categories of banks differ in their ownership structure, business philosophy, geographical presence, customer base, technology adoption, manpower profile and governance practices.

CLASSIFICATION OF BANKS LOAN ASSETS

After identification of the accounts as NPAs at the end of March every year or the date becoming on NPA, the Next step is asset classification. All type of advances which are not identified as NPA will be termed as standard assets and all NPAs will be classified in to three categories. Viz., substandard, doubtful assets and loss assets. Reserve Bank of India (RBI) has issued guidelines on provisioning requirement with respect to bank advances. In terms of these guidelines, bank advances are mainly classified into:

Standard Assets:

Such an asset is not a non - performing asset. In other words, it carries not more than normal risk attached to the business.

Sub-Standard Assets:

With effect from March 31, 2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

Doubtful Assets:

With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, – on the basis of currently known facts, conditions and values – highly questionable and improbable.

Loss Assets:

A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

FIG: Classification of Banks Loan Asset

IMPORTANCE OF THE STUDY

The basic function of banks provided loan to customers on the basis of soundness of investment and quality of loan assets. This function is depending on the capability of credit risk of the banks. Credit risk is associated with lending highly and whenever a party enters into an obligation to make payment or deliver value to the bank. Credibility correlated with the factors of profitability and the long run sustenance of the bank and these factors depend on the income, expenditure, net interest income, NPAs and capital adequacy. When the money (Assets) is blocked, inadequate cash at hand this leads to borrowing of money for short period of time. This money is called Non-Performing Assets. Time and efforts of management cause indirect cost which bank has to bear due to Non Performing Assets.

Different banks have different ways to deal with and handle Non Performing Assets, which is also an additional cost to the bank. Bank is facing fatal problem of Non Performing Assets as it adversely affects the value of credit risk of bank. It will lose its goodwill, brand image and credit which have negative impact on the people who are investing their money in the banks. Issue and Challenges for Indian Banking Industry

The NPAs of banks have assumed large amount of proportions and are regularly deterrent to the smooth flow of credit to the productive sectors. The high level Committee on financial system (with Sh.M. Narasimham chairman) constituted by RBI (1991) to made recommendations on financial sector reforms also observed that serious problems are plaguing the financial sectors which is reflected in decline in productivity and efficiency and erosion of profitability due to deterioration in the quality of loan portfolio restricting income generation and enhancement of capital funds, accompanied by inadequate loan loss provisions. Firstly, Narasimham Committee introduces the concept of NPAs and gives the direction for implementing of NPAs to RBI in 1996.

OBJECTIVES OF THE PAPER:

The main purpose of the proposed study is to examine the performance of loan portfolio of Scheduled Commercial Banks in India. The following are the specific objectives of the study

1. To analysis the asset quality of Loan Portfolio of New Private Sector Banks in India.

2. To identify the relationship between loan assets to total advances.

3. To identify the significant loan assets component in the gross NPAs of New Private Sector Banks in India.

HYPOTHESES:

Based on the objectives the following hypotheses are framed.

1. There is no relationship between the loan portfolios of New Private sector banks in India

2. There is no significant difference between the loan assets of New Private sector banks in India

METHODOLOGY:

Research Design

Research Design chosen for this study is Descriptive Research Design. Descriptive study is based on some previous understanding of the topic. Research has got a very specific objective and clear cut data requirements.

Data Sources for the Present Study

The data is collected from the secondary sources and comprises published reports of RBI Report on Trend and Progress of Banking in India, RBI statistical information relating to Banks in India, various journals, magazines, PROWESS database, capital line database, Indiastat database and information from the related websites.

Statistical Tools and Techniques

For the analysis of data collected, various statistical tools and techniques like Average (Mean), Standard deviation (STD), Coefficient of Variation (CV), Compound Annual Growth Rate (CAGR), Maximum, Minimum are used in this study, Comparative analysis and deep study are done and at last results are received and one-way ANOVA, Duncan Analysis and Correlation have been used to arrive at the conclusions

Period of the Study

The study covers a period of consecutive twelve years starting from 2000-2001 to 2011-2012.

ANALYSIS OF THE QUALITY OF LOAN PORTFOLIO IN THE NEW PRIVATE SECTOR BANKS IN INDIA

The quality of assets held by banks is extremely important for their performance. This is the guiding factor in the decisions related to the incremental credit disbursement. An attempt has been made hereunder to examine the position of NPAs of New private sector banks in India. For this purpose new private sector banks has been considered. The table 1, demonstrates the position of loan classification of old private banks during the study period.

From the above table 1, the classification of NPA in new Private sector banks in India during the study period was found and concluded that the standard assets was showed an increasing trend about 2455.107 per cent followed by substandard assets, doubtful assets and loss assets of 391 per cent, 650.01 per cent and 20000 per cent over the study period. In terms of percentage on total advances the standard assets found to be higher year by year 94.9 per cent in 2001 to 98.1 per cent in 2012. In case of substandard assets and doubtful assets the percentage on total advances showed decreasing over the study period but in case of loss assets it was found that the percentage of loss assets on total advances was increasing. It was further found that among the classification of NPA in New Private sector banks in India during the study period doubtful assets is showed more consistent than other in terms of the coefficient of variation during the study period. In terms of value the average standard assets is more than the other followed by substandard assets (Rs.37.654 billion), doubtful assets (Rs.40.30 billion) and loss assets (Rs.8.59 billion). The table revels that compare to previous years during 2012 the NPA in new private sector banks In India found to be decreased; it showed that new private sector banks in India are now concentrating more on its NPA management.

Table 1: Classification of NPA in New Private Sector Banks in India
Year	Standard Assets				Sub-Standard Assets
Year	Amount	Growth Rate	Trend in %	% in total Advances	Amount	Growth Rate	Trend in %	% in total Advances
2001	299.05		100	94.9	9.63		100	3.1
2002	700.1	134.108	234.1080	91.1	29.04	201.558	301.557	3.8
2003	875	24.96358	292.5497	92.3	27	-7.024	280.37	2.9
2004	1135.6	29.80214	379.73583	95	20	-27.185	204.153	1.6
2005	1225.77	7.940296	409.8879	96.2	14	-26.297	150.46	1.1
2006	2285.04	86.4167	764.0996	98.3	17	18.4955	178.29	0.7
2007	3190.02	39.60456	1066.717	98.1	36	110.134	374.66	1.1
2008	4020.13	26.02209	1344.300	97.5	65	79.4069	672.17	1.6
2009	4408.13	9.651429	1474.044	96.94	93	43.0249	961.370	2.04
2010	4737.24	7.465978	1584.096	97.13	74	-19.56	773.312	1.53
2011	6100	28.76696	2039.792	97.7	33	-55.686	342.679	0.5
2012	7342	20.36066	2455.107	98.1	34	3.0303	353.063	0.4
Mean	3026.496	37.73658	1012.036	96.10583	37.654	29.0813	391.009	1.6975
STD	2311.396	38.72894	772.9127	2.359239	25.93	75.4477	269.26	1.07975
CV	76.372	102.6297	76.37200	2.454834	68.863	259.437	68.862	63.6082
CAGR	30.56874	-15.7488	30.56874	0.276746	11.085	-31.722	11.084	-15.6876
Maximum	7342	134.108	2455.107	98.3	92.58	201.558	961.37072	3.8
Minimum	299.05	7.46597	100	91.1	9.63	-55.686	100	0.4

Table-1 cont…

Year	Doubtful Assets				Loss Assets
Year	Amount	Growth Rate	Trend in %	% in total Advances	Amount	Growth Rate	Trend in %	% in total Advances
2001	6.2		100	2	0.11		100	0
2002	38.71	524.35	624.3548	5	0.41	272.7273	372.727	0.1
2003	37	-5.063	592.7419	3.9	8.56	1987.805	7781.82	0.9
2004	37	-0.272	591.129	3	3.21	-62.5	2918.18	0.3
2005	31	-16.48	493.7097	2.4	3.34	4.049844	3036.36	0.3
2006	19	-39.4	299.1935	0.8	4.6	37.72455	4181.82	0.2
2007	21	15.741	346.2903	0.7	5.16	12.17391	4690.91	0.2
2008	31	44.667	500.9677	0.8	8.49	64.53488	7718.18	0.2
2009	37	19.382	598.0645	0.82	9.34	10.01178	8490.91	0.21
2010	50	33.576	798.871	1.02	15.86	69.80728	14418.2	0.33
2011	90	81.708	1451.613	1.4	22	38.71375	20000	0.4
2012	87	-3.333	1403.226	1.2	22	0	20000	0.3
Mean	40.301	59.535	650.0134	1.92	8.59	221.368	7809.09	0.286667
STD	25.126	157.56	405.2649	1.401817	7.6044	591.8477	6913.1	0.220921
CV	62.347	264.65	62.34716	73.0113	88.526	267.3592	88.5263	77.06544
CAGR	24.622	-163.1	24.62178	-4.16755	55.508	-100	55.5079	10.50315
Maximum	90	524.35	1451.613	5	22	1987.805	20000	0.9
Minimum	6.2	-39.4	100	0.7	0.11	-62.5	100	0

Table-1 cont…

				As on March 31 (Amount in ` Billion)
Year	Gross NPAs				Total Advances
Year	Amount	Growth Rate	Trend in %	% in total Advances	Amount	Growth Rate
2001	16		100	5.1	315
2002	68.16	326	426	8.9	768.26	143.89
2003	72	6.0886	451.9375	7.6	947	23.289
2004	60	-17.69	372	5	1195.1	26.177
2005	48	-18.62	302.75	3.8	1274.2	6.6177
2006	40	-16.76	252	1,8	2325.4	82.494
2007	63	55.531	391.9375	1.9	3253	39.892
2008	104	66.289	651.75	2.5	4124.4	26.788
2009	139	33.295	868.75	3.05	4547.1	10.249
2010	140	0.5755	873.75	2.87	4877.1	7.2567
2011	145	3.7196	906.25	2.32	6245	28.047
2012	143	-1.379	893.75	1.9	7485	19.856
Mean	86.545	39.732	540.9063	4.08545	3113.1	37.687
STD	45.638	99.243	285.2353	2.34971	2351.6	40.995
CV	52.733	249.78	52.73286	57.5141	75.541	108.78
CAGR	20.024	-160.8	20.02397	-7.8988	30.214	-16.477
Maximum	145	326	906.25	8.9	7485	143.89
Minimum	16	-18.62	100	0	315	6.6177

Source : Off-site returns (domestic) of banks, Department of Banking Supervision, RBI and Various Issues of RBI Trend and Progress

Table 2: Correlations Between Loan Assets of New Private Sector Banks
		std_ assets	substd_ assets	doubt asset	loss assets	total advances
Std assets	Pearson Correlation	1	.523	.777^**	.914^**	1.000^**
	Sig. (2-tailed)		.081	.003	.000	.000
	N	12	12	12	12	12
Substd assets	Pearson Correlation	.523	1	.176	.371	.529
	Sig. (2-tailed)	.081		.583	.235	.077
	N	12	12	12	12	12
doubt asset	Pearson Correlation	.777^**	.176	1	.895^**	.780^**
	Sig. (2-tailed)	.003	.583		.000	.003
	N	12	12	12	12	12
loss assets	Pearson Correlation	.914^**	.371	.895^**	1	.915^**
	Sig. (2-tailed)	.000	.235	.000		.000
	N	12	12	12	12	12
total advances	Pearson Correlation	1.000^**	.529	.780^**	.915^**	1
	Sig. (2-tailed)	.000	.077	.003	.000
	N	12	12	12	12	12
**. Correlation is significant at the 0.01 level (2-tailed). Source: Computed by the Researcher using table 1

Table 3: ANOVA for Loan Assets of New Private Sector Banks
	Sum of Squares	df	Mean Square	F	Sig.
Between Groups	133210108.236	4	33302527.059	15.313	.000
Within Groups	119615591.048	55	2174828.928
Total	252825699.284	59
Source: Computed by the Researcher using table 1

Table 4: Duncan Analysis for Loan Assets of New Private Sector Banks
VAR00008	N	Subset for alpha = 0.05
VAR00008	N	1	2
loss assets	12	8.5900
Substandard assets	12	37.6392
doubtful assets	12	40.4092
standard assets	12		3026.5067
total advances	12		3113.0492
Sig.		.961	.886
a. Means for groups in homogeneous subsets are displayed. Uses Harmonic Mean Sample Size = 12.000. Source: Computed by the Researcher using table 1

FINDINGS OF THE STUDY:

It was further found that among the classification of NPA in New Private sector banks in India during the study period doubtful assets is showed more consistent than other in terms of the coefficient of variation during the study period. In terms of value the average standard assets is more than the other followed by substandard assets (Rs.37.654 billion), doubtful assets (Rs.40.30 billion) and loss assets (Rs.8.59 billion).

It was found that compare to previous years during 2012 the terminal year of study, the NPA in new private sector banks In India found to be decreased; it showed that new private sector banks in India are now concentrating more on its NPA management.

The ‘r’ value for total advances with standard assets is 1, substandard assets is .529, doubtful assets is .780 and loss assets is .915 However all these correlation coefficient are statistically significant at 5 and 1 per cent level of significance except substandard with total advances.

It was found from the Duncan analysis that the doubtful assets are the major contributing item in the gross NPA followed by substandard assets and loss assets in the new private sector banks in India during the study period.

CONCLUSION:

NPAs reflect the overall performance of the banks. The NPAs have always been a big worry for the banks in India. The Indian banking sector faced a serious problem of NPAs. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and liquidity of banks. To improve the efficiency and profitability, the NPAs have to be scheduled. Various steps have been taken by government to reduce the NPAs. It is highly impossible to have zero percentage NPAs. The NPA growth involves the necessity of provisions, which reduces the overall profits and shareholders’ value. Due diligence and utmost care must be taken by the branch managers before sanctioning the loans to the clients and specially in case of lending to priority sector. So, careful steps like selection of right borrowers, viable economic activity, adequate finance and timely disbursement, correct end use of funds and timely recovery of loans are absolutely necessary pre conditions for preventing or minimizing the incidence of new NPAs which will enhance the creditability of the banks and in turn make the foundation of our country strong.

REFERENCES:

1. Ahmed (2008).Asset Quality and Non Performing Assets of Commercial Banks. MD Publications Pvt Ltd. New Delhi. Pp109-111

2. http://www.thehindubusinessline.com/industry-and-economy/banking/private-banks-score-over-public-sector-peers-in-201213/article4820493.ece

3. Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, RBI/2013-14/62 , DBOD.No.BP.BC.1/21.04.048/2013-14 dated July 1, 2013

4. Angadi,v.b and devaraj, v.john (1983) “productivity and profitability of bank in India” , Economic And Political Weekly , Vol. 18, no . 48,pp 160-170.

5. Bhatia,Saveeta And Verma, Sthish (1999) Factors Determining Profitability of Public Sector Bank in India ,An Application of Multiple Registering Model”, Paranjan, Vol. XXXVII, No 4, pp 433-445.

6. D’souza, Errol (2002) how well have public sector bank done? A Note”, Economic and political weekly, No.6 pp. 867-870.

7. Debasish, Sathya Swaroop and Mishara, Bishnupriya(2005), Indian Banking System (development performance service) ,Mahamaya publishing house new Delhi.

8. Dheenadhayalan.V and Rajaprabu.D (2013) A study on liquidity in new generation private sector banks in India. Indian Journal of Research and Business Innovation.vol.1.no 4, pp 114-125.

9. Dheenadhayalan.V and Rajaprabu.D (2013), Study On Non‐Performing Assets In New Generation Private Sector Banks In India. Research Explorer. Vol.1. No.1. Pp 131-135.

10. Dheenadhayalan.V. (2013). Non Performing Asset – An Alarm for Financial Turmoil, International Journal of Research and Business Innovation vol 1. No 4 pp 188-194.

11. Dheenadhayalan.V.(2013).Non Performing Asset in India Banking A Glance, International Journal of Functional Management, vol.1. No 2, pp 40-43

12. Dheenadhayalan.V.(2014). “Analysis of the loan portfolio in Scheduled Commercial Bank in India”. In modern trend and development strategies in business. (Ed) Sakethevelmurugan and Chanderaseger.V. D.B. Jain collage Chennai pp 30-34

13. Duski A, A Wajdi and Abdul, N Irwa (2007), “why do Malaysian customer patronize Islamic bank?” International Journal of Bank Marketing, voll. 25, No. 3, pp.142-160.

14. Goddard, Joun Molyneuxm,Phil and Wilson , Joun OS (2004)”The Profitability of European banks :A cross –sectional and Dynamic Panel Analysis The Manchester School, Voll 72, No 3, pp.363-381.

15. Kapoor,GP (2004) Commercial Banking , A Publishing Corporation New Delhi

16. Kohil,harpreet and chawla,AS (2006), “Profitability Treads In Commercial Bank: A Study Of Select Commercial Banks”,Indian Management Studies Journal, vol.10,No.2,pp.51-70.

17. Kur, Narinder and Kapor, Reetu (2008), Profitability Analysis of New Generation Private Sector Bank in India” PIMT journal of research, vol.1, pp. 35-45.

18. Mester, L.J(1996), “A Study Of Banking Effect Taking into Account Risk – Preference”, Journal of Banking and Finance, voll.20,No.6,pp.1025-1045.

19. Nadimi,Reza And Jolai, Fariborz(2008), Joint Use of Factor Analysis(FA)and Data Envelopment Anaysis”, International Journal Mathematical Physical And Engineering Sciences’, vol. 2,no.4, pp.218-222.

20. Ram mohann ,TT 2002) deregulation and performance of public sector bank”, Economic and Political Weekly, Voll XXXVII, No.5 pp393-397.

21. Reetu Kapoor and R.C. Dangwal (2012) factor affecting banking profitability: An Empirical Study, Journal of Accounting and Finance Volume 26, No. 2 pp 24-37.

Received on 20.03.2014 Modified on 10.04.2014

Asian J. Management 5(3): July-September, 2014 page 347-353